The Must-Have Sector For Your Portfolio

Published in Investing on 11 May 2012

The industry pays good dividends and should survive the recession.

When Britain's answer to Warren Buffett concentrates his portfolio on just a handful of industry sectors, it pays to sit up and take notice.

Through the Income and High Income funds he runs at Invesco Perpetual, Neil Woodford manages a massive £20 billion of client money -- and almost half of that is spread across just three sectors.

One of Woodford's favoured industries -- as outlined in this exclusive Fool report: "8 Shares Held By Britain's Super Investor" -- is telecommunications, where he's invested around 10% of his total funds spread across just two companies.

It's good to talk

I'd like to think telecoms can be unaffected by dips in the economy, as everyone continues to use their phone regardless of the financial climate. In Woodford's own words: "Even in a recession, people are not going to stop using their mobile phones or computers."

The telecoms sector has huge appeal to dividend investors; just look at the figures. In 2011, the industry alone represented 9.3% of the year's total dividend payout. And this was propped up by two companies in particular.

Keenly established as a long-time leading light in this sector is BT (LSE: BT-A). While Britain's largest fixed-line operator has a long-time track record of supplying dividends to its shareholders, new deals in recent months -- involving giants such as J Sainsbury (LSE: SBRY) and Standard Life (LSE: SL) -- have helped cement its dominant land-line position.

The other sector play of course is mobile-phone giant Vodafone (LSE: VOD). Imminently expanding its UK operations, Vodafone is bidding to buy Cable & Wireless Worldwide (LSE: CW) for £1bn, and instantly become the UK's second largest fixed-line operator.

With these two companies in his portfolio, Woodford looks to be holding a very good hand indeed!

Shareholder appeal

Blue-chip Vodafone has also proved itself to be one of the most appealing dividend shares on the market over the years, exemplified in part when it paid out a £2 billion special dividend to its shareholders in February. This jackpot payment came off the back of a £2.8 billion dividend the group received from a 45% holding in US mobile-phone firm Verizon Wireless.

BT looks after its shareholders, too.

As fellow Fool Cliff D'Arcy pointed out recently, BT admittedly does have one of the UK's largest corporate-pension schemes -- which, at the last count, had liabilities some £4.1 billion greater than its assets.

However, the recent news that BT has paid £2 billion into the scheme -- and plans to put another £3 billion spread over the next nine years is encouraging. In particular, the company now stands to benefit from some (very complicated!) changes to pension tax rules, which I understand should put more money into the shareholders' pockets.

The future's bright for telecoms

Both BT and Vodafone are considered to be among the country's biggest spenders on research and development, with Vodafone appearing high on this list as a company that increased R&D expenditure significantly during the recession -- and thus priming itself well for the future.

The mobile Goliath also has stakes in companies globally. In the US with Verizon Wireless, as previously mentioned, but also within emerging markets, with a 75% stake in India's Vodafone Essar. Therefore, investors should feel confident that both telecom titans are well prepared for whatever the future holds.

Foolish takeaway

Neil Woodford has a proven track record, and isn't considered the UK's answer to Warren Buffett for nothing. With the market swinging in these turbulent times, he's backing certain blue-chip companies to see us through.

Indeed, we've also identified two other sectors, consisting of just six shares, that Woodford has put the best part of 40% of his entire holdings into. You can discover the identities of these shares by downloading this free report --"8 Shares Held By Britain's Super Investor" -- today.

Tempted by telecoms? Just where should you invest today? "Top Sectors Of 2012" is our guide to three favourable industries for all investors. The Motley Fool is helping Britain invest. Better. All Fool reports are free.

Further investment opportunities:

Sam does not own any share mentioned in this article.

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The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

BIACS 11 May 2012 , 9:00am

... or alternatively you can ignore the Fool marketing and just take a look at the latest Invesco data sheets and annual reports on his funds to see what shares and sectors he's holding ...

OxonianCambion 11 May 2012 , 9:14am

... or alternatively you could appreciate that the MF report is more than just a listing and helps you understand some of the the reasoning behind the choices, which is actually more important ...

giveusaquid 11 May 2012 , 1:06pm

"In particular, the company now stands to benefit from some (very complicated!) changes to pension tax rules, which I understand should put more money into the shareholders' pockets."

Are those changes only related to BT or everybody with a company pension? It always feels like taking from one hand to give to the other, so my investments might improve but the pension will be screwed.

kiffberet 11 May 2012 , 1:07pm

I like the sound of this Woodford fella, so what's the best way to cash in on his expertise: invest in one of his Investco funds or buy his Edinburgh IT?

Do they hold the same companies? Are the costs the same?

I'm a bit lost here. Any advice would be gratefully received.


nnnnineteen 11 May 2012 , 1:11pm

Does he pay you 5p everytime that you mention NW?

Dozey1 11 May 2012 , 4:14pm

I suspect you've got the units wrong nnnnineteen. Just wait til he starts a China fund a la Bolton.

jongleur100 11 May 2012 , 4:31pm

@Kiff - If you chart EDIN (the Edinburgh IT he manages) against his Invesco High Income Fund, EDIN comes out appreciably higher. EDIN also has a much cheaper TER (0.66%) than the Invesco OEIC (1.69%).
And the IT annual yield at 4.5% is a no-brainer against Invesco's 3.72%.
I had money in the Invesco HI fund for about 15 years, then switched to the EDIN a couple of years ago, after Woodford took it over. I'll certainly be buying more on renewed market weakness. (The IT share price is currently at a 2% premium to NAV.)
Hope that helps.

rober00 11 May 2012 , 4:48pm

EDIN can also leverage up which his open ended funds cannot!!!

RobinnBanks 12 May 2012 , 9:10pm

Who's this Nell Woodford then?

goodlifer 13 May 2012 , 8:23pm

"Who's this Nell Woodford then?"

He seems to be the poor man's Warren Buffett.

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